Thursday, December 2, 2010

November auto sales came in a bit above expectations. Since hitting bottom in Feb. '09, sales are up at a 17% annualized pace, which is in itself rather impressive. Of course, the level of sales is still dismally low from an historical perspective—who would have thought, in the year 1976, that sales 34 years hence would be lower than they were then, despite a 62% increase in the labor force?

There is absolutely huge upside potential here once the economy gets back on solid footing.

Commodities are by nature 'speculative'. Always have been. If this holder is wrong he/she/it will take a hugh haircut.

This very may well be a sovereign wealth fund(s) with longer term needs for the physical commodity (China?). But you are correct...recent years have seen great speculative activity from the long side. Someone with very deep pockets is betting big on a global economic expansion. My guess is they'll be right.

Re the LME copper holdings: I note that the holdings in question, while they represent more than half the copper stocks at the LME warehouse, only amount to 1% of the world's annual copper consumption. That's about 3 and a half days' worth of copper. It's also only 10% of the open interest in copper contracts. Is it reasonable to think that buying such a tiny amount relative to annual copper production can make a significant difference in the price of the world's copper holdings? I don't buy it. I also don't believe that anyone can game the oil market. When has OPEC ever been able to enforce its quotas?

Finally, I would note that for every speculative long position in copper futures (or any futures for that matter) there must also be a short position. You can't make a speculative bet without finding someone willing to take the other side of that bet.